When people who are not familiar with the UK’s Retirement Community sector approach me as an ‘expert’ in Deferred Management Fees (DMF), they often believe what I will show them is how the DMF pricing mechanism works and how it is valued and contracted i.e. they view it primarily as just another way to pay. As a consequence, the strategic response is primarily to offer a wider choice of rental, DMF and possibly shared ownership, without always sufficiently considering what is really motivating consumer behaviour.
For me, a successful strategy will view the DMF model as underpinning a deep proposition that is aligned to your customers’ buying drivers. This can then be translated into a consistency of approach and organisational philosophy, informing every aspect of the development, marketing and operation. Of course the payment of the DMF ‘X’ years down the track, will mark the end of the customer journey.
What such a proposition might look like, the level of DMF pricing to apply, how this relates to other pricing levels, and undertaking effective due diligence, is a pivotal discussion for any organisation serious about this sector to have, but that is for the next article to explore.
In my view, potential funders and developer/operators alike will struggle to be profitable in the medium to long term, unless they grasp that Retirement Communities are first and foremost an operating business built on the foundations of a sophisticated service offer. Many of those now considering moves into the sector pay lip service in this regard, but, deep down, I often detect a development mindset and approach trying to sneak back in– sufficiently to turn a potentially good proposition into one that could be weak, dissonant, badly priced or all of them. Sadly, I see too much of this. As I heard a successful overseas CEO state recently when referring to potential buyers, “This is an investment in a lifestyle……if they want to invest in property, they need to go elsewhere”. This applies as much to those building the sector as those customers wishing to buy.
I have shared a few of my thoughts and, no doubt, there are other thoughts, views and conversations to be had out there. What I’m sure is agreed is that this is an exciting but embryonic sector very likely to be the next big asset class in the UK and that the DMF model is the key to long term profitability, happy customers and a thriving industry.
David Whiteley is an expert on the Retirement Community sector and Managing Director of Whiteley Consulting.